Still Debating the Minimum Wage

minimum wageLast week the New York Times ran an op-ed by Casey B. Mulligan, economics professor at the University of Chicago and author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Proposals by the Democrats to raise the federal minimum wage to $9 per hour prompted Casey Mulligan’s recent article “Hidden Costs of the Minimum Wage,” where he points out that economists disagree on the historical effects of minimum-wage changes, and whether minimum wage increases actually help the poor. Yet the conclusions Mulligan comes to flagrantly disregard the well-being of millions of working Americans and their families.

Mulligan explains that in a “typical economy,” market wages generally increase over time with inflation and as workers become more productive. If the minimum wage is simply a fixed dollar amount, “the tendency for market wages to increase over time means that economic damage from the minimum wage is shrinking. That’s one reason that economists who see benefits of minimum wages would like to see minimum wages indexed to inflation, allowing the minimum wage to increase automatically as the economic damages fell.”

However, as he points out, these are not normal times. Lower-skilled workers are experiencing a situation where their wages fall over time, primarily because they are unemployed and failing to maintain the skills one develops while working consistently. In addition, the new health care regulations which will become official in January will reduce cash wages, as many employers of low-skill workers are fined up to $3,000 per employee per year, as the law mandates new fringe benefits for other employers and low-skill workers find themselves competing with others for the PT jobs that are expected to become loopholes in the new legislation. (The minimum wage law restricts flexibility on cash wages, by establishing a floor, but makes no rule on fringe benefits.)

Mulligan concludes as follows: “To keep constant the damage from the federal minimum wage, the federal minimum wage needs not an increase but an automatic reduction over the next couple of years in order for it to stay in parallel with market wages.”

But how would this affect the nation’s poorest workers? Can we continue to sacrifice their ability to support their families while working full time – sometimes working more than one job?

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